Advancing the Union Budget by a month is seen as a solution for budget processes trespassing the coming fiscal year
Unfolding a suitable fiscal year, in resonance with the rest of the world, is one idea being pursued by the Modi government. A four-member committee—headed by the former chief economic adviser Shankar Acharya—has been asked to submit a report, on the desirability and feasibility of a change in the financial year, by December 31.
India follows April-March fiscal year. By tradition, the Union Budget day is on the last working day of February, although the Constitution does not mandate a particular day. However, the preparations for the Budget start as early as September. This is the time when the finance ministry begins pre-Budget consultations with several ministries and departments to have an understanding of their revenue and capital expenditure. Discussions are held with state governments, too. The Budget session of Parliament begins in the last week of February and ends in mid May, with the passing of the full Budget. To meet the regular expenditure during this period, the government gets a vote on account passed by the house in March.
This is the system in prevalence. Then how come Modi government wants a change now?
The budget processing is a long routine, currently running into the new financial year. Ministries and departments are lapsing the initial two months of the new fiscal year, waiting to have a clear reckoning of the actual allocations by mid-May. Further, it takes a couple of weeks for various departments to hold in-house discussions. For this reason, during April-May period, the financial outlay is less.
It affects resource mobilisation, as well. An example is the service tax hike of 0.5 percent from 14.5 per cent, in the last Budget. It came into force only in June, though it was supposed to be levied from April 1. But in the case of direct taxes, like income tax or corporate tax, the increase or decrease will be applied retroactively. Corporates have the disadvantage of starting their planning late, in accordance with the new tax provisions. Looking from the tax payee's angle, the citizen loses two months to plan and invest evenly. It is evident that administration as well as business suffers on account of the present budgeting system.
So the solution being worked out by the finance ministry is to present the Budget in January instead of February, with no change in the fiscal year. This change will help everyone to plan accordingly right from the beginning, availing full 12 months of the fiscal year.
Ministry is overloaded
Nevertheless, presenting a January Budget in 2017 has its own troubles. The finance ministry is overladen with consultations on GST and the prospect of a Rail Budget presentation along with the Union Budget. The ministry officials are burning midnight oil to roll out the Goods and Services Tax on time. If the Railway Budget gets merged with the Union budget, the finance ministry has to bear that additional work. Adding to these, 'plan and non-plan expenditure' will give way to 'capital and revenue expenditure' in the annual financial document. Too many changes occurring at a time could turn out to be a disaster.
The process of budgeting starts off in September-end with the Budget notification. If the Budget presentation is advanced, the process has to start now.
Seen as poll strategy
Sceptics see a political move behind this idea of advancing the Budget. They say the Modi government wants to present a popular full budget close to the general election. The next Lok Sabha election is due in April-May 2019. A vote catching Budget in the last year of the government is a tactic followed by finance ministers. But rarely do they get a chance to pass a full budget close to the general election. So it is always a vote on account or an interim budget. If the Budget day is advanced, the finance minister will have a chance to face electorate with Modi's magic Budget.
However, changing the annual schedule of Parliament requires political consensus. The BJP needs to take all parties into confidence before it can go ahead with a January Budget.